When companies report earnings that fall below expectations, their stocks often take a dive. But when missed earnings forecasts are accompanied by weaker forward guidance, their stocks can get crushed, which appears to be what is happening this earnings season. Stocks of companies with earnings misses are falling more than usual as their CEOs and other executives provide gloomy outlooks for coming quarters, according to The Wall Street Journal

Some of the big losers include 3M Co. (MMM), Sirius XM Holdings Inc. (SIRI), Intuitive Surgical Inc. (ISRG), Bank of New York Mellon Corp. (BK), and Walgreens Boots Alliance Inc. (WBA), United Parcel Service Inc. (UPS) and Proto Labs Inc. (PRLB). As of this past Friday, more than 45% of companies had reported earnings.

7 Stocks’ Punishment for Missing Earnings

(company, percent change in stock price)

  • 3M, - 12.9%;
  • Sirius XM Holdings, - 7.2%;
  • Intuitive Surgical, - 7%;
  • Bank of New York Mellon, - 10%;
  • Walgreens Boots Alliance, - 13%;
  • United Parcel Service, - 8.1%;
  • Proto Labs, - 5%. 

Source: The Wall Street Journal; Yahoo! Finance (change in stock price based on change between close on day earnings were reported and the prior day’s close).

What It Means for Investors

As of this past Wednesday, companies that have missed their earnings forecasts in the current earnings season have seen their shares decline 3.2% on average between the two days prior to their earnings report and the two days following the report. Over the past five years that average has been just 2.5%, according to FactSet data reported on by the WSJ.

Among companies that had already reported first-quarter earnings, analysts at Bank of America Merrill Lynch found within those reports that mentions of “better” or “stronger” versus “worse” or “weaker” have been tracking at their lowest level since the first quarter of 2016. The weaker guidance is adding to the declines in share prices of those companies whose earnings are missing analyst forecasts. 

3M, which reported earnings on Thursday, saw its shares fall nearly 13% as first-quarter adjusted earnings fell to $2.23 per share, $0.25 below average analyst estimates of $2.48 a share. The company also announced that it would be shedding 2,000 jobs due to recent poor performance, and cut its own forecast for 2019 adjusted earnings to no more than $9.75 a share from a previous forecast between $10.45 and $10.90, according to Bloomberg.

Bank of New York Mellon reported earnings of $0.94 a share, $0.02 below analyst estimates of $0.96 per share. As for forward guidance, CNBC reported CEO Charlie Scharf as saying, “While the current expectations for the yield curve will likely negatively impact our revenue growth for the next several quarters, we will remain disciplined on expenses.” Bank of New York Mellon’s shares fell 10% on the news.

Looking Ahead

While some companies appear to be struggling, it is important to note that as of last Tuesday 78% of S&P 500 companies had reported actual earnings per share (EPS) above estimated EPS. That’s a full six percentage points above the five-year average of 72%, according to FactSet. Additionally, they are beating those EPS estimates by 5.7%, which is above the five-year average of 4.8%. 

Those are some optimistic trends that, if they continue for the companies still to report, will lead to year-over-year growth in earnings for the quarter, even as Morgan Stanley’s chief U.S. equity strategists Mike Wilson is reiterating his call for an earnings recession this year.